Mortgage brokers and lenders — and the media outlets that carry their ads — have been put on notice by the Federal Trade Commission that some claims being made about mortgage loans on Web sites, newspapers and unsolicited e-mails may violate federal law.
The FTC says it has sent warning letters to more than 200 advertisers and media outlets after a nationwide review in June identified ads that were potentially deceptive or in violation of the Truth In Lending Act.
The ads — some of which were in Spanish — touted low monthly payments or interest rates as low as 1 percent without adequate disclosure of other terms, the FTC said.
Issues flagged by the FTC included ads where the stated rate was a payment rate that applied only during a loan’s initial period, and the omission of annual percentage rates (APRs) that give consumers a basis for comparing mortgages.
“Some ads promoted only incredibly low monthly payments but failed to disclose adequately the terms of repayment, including payment increases and a final balloon payment,” the FTC said in announcing the issuance of warning letters.
The letters advised lenders to review their ads for compliance with relevant laws and requirements, while media outlets were given guidance on screening ads for questionable claims.
According to Federal Trade Commission Chairman Deborah Platt Majoras, the FTC has brought 21 actions against mortgage lenders in the last decade, winning more than $320 million in judgments and settlements in cases where the commission alleged unfair advertising, marketing or servicing of mortgage loans.
According to Majoras’ testimony before the House Committee on Financial Services in June, most of those cases were brought before the most recent boom in subprime lending — including a $215 million settlement in 2002 with Citigroup Inc. over the marketing of subprime mortgages by Associates First Capital Corp. and Associates Corp. of North America.
In that case, the FTC alleged consumers were told they could save money by consolidating debts, but those claims did not take into account the company’s loan fees and closing costs. Consumers who paid only interest on some loans ended up owing balloon payments at the end of their loan terms. In addition to the settlement with regulators — which at the time, was the largest in FTC history — the defendants paid $25 million to settle a class-action suit.
More recently, in June 2004 the FTC sued California-based mortgage broker Chase Financial Funding, complaining the company sent unsolicited e-mails and direct mail promising “3.5 percent fixed payment” loans. According to the complaint, consumers would accumulate additional principal on the loans if they made the advertised monthly payments during an introductory period, after which their payments would increase. That suit is unresolved.
Last year, the FTC filed a complaint against Mortgages Para Hispanos.com Corp., alleging that the mortgage broker deceived Hispanic borrowers who sought to refinance their home loans. The company was accused of misrepresenting key loan terms by conducting business with clients in Spanish and then providing closing loan documents in English with less favorable terms. The broker, Daniel Moises Goldberg, paid $10,000 to settle the complaint.
Loan servicers have also been accused of engaging in questionable practices. In November 2003, the FTC and the Department of Housing and Urban Development reached a $40 million settlement with Fairbanks Capital Corp., which was accused of failing to post borrowers’ payments, charging unauthorized fees, and using dishonest or abusive tactics to collect debts. Fairbanks, which has since changed its name to Select Portfolio Servicing Inc., was also charged with reporting consumer payment information it knew was inaccurate to credit bureaus.
In 2005, the Salt Lake City-based company and another loan servicer, Homecomings Financial Network Inc. of Dallas, agreed — without admitting wrongdoing — to forgive $11 million in debts to settle similar charges in West Virginia, after 267 homeowners lost their homes in questionable foreclosures.